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Dr Jekyll and Mr Hide

Entry 1374, on 2012-03-30 at 16:48:40 (Rating 4, Politics)

I think I can see why neo-liberal politicians (and their supporters) are so out of touch. They take their wonderful elegant theories much too seriously and ignore the evidence of cold, hard reality.

It's a bit like the early days of cosmology where the beauty of the steady state theory enticed some astronomers into supporting it even though the facts supported the much less tidy and elegant big bang theory instead. The difference between cosmology and economics though is that cosmology is a science and economics is... well, I really don't know what it is, but it certainly doesn't fit well with my perception of science!

So most cosmologists quite quickly had to change their allegiance because the facts simply didn't support the steady state, irrespective of how elegant it was. In science the facts are the ultimate judge of truth. In other areas I'm afraid that certainly isn't the case. It obviously isn't in religion and politics and, as I said above, I have major doubts about economics too!

A lot of modern economic theory traces its origins back to Adam Smith's book, the Wealth of Nations, which many people see as the "gospel" of modern free market economic theory. At this stage I should confess that I haven't read the book but I have read material discussing and summarising it so I apologise in advance if I have missed many of the nuances!

The original reason for this blog post was an interview I recently heard with a New Zealand ex-politician (recently ejected from the libertarian party he previously lead) who is often seen as one of the leaders of neo-liberal theory here. His name is Rodney Hide and he sort of has a Jekyll and Hyde (excuse the pun) personality: reasonable on the surface but a rabid fanatic when it comes to economic theory.

Perhaps the most important aspect of the theory espoused by Hide is the idea that self-interest produces the best outcomes through the invisible hand (also know as the magical effects) of the Market. Yes, I write the word market with a capital "M" in this case because it's like the mystical supreme power for people of this belief system, sort of like God is to people with more conventional religious beliefs.

There is no doubt that markets can produce efficient outcomes but only in a very restricted and short-sighted way. The problem is that they don't produce good outcomes long term and they entirely ignore phenomena which are not amenable to having a financial value placed on them.

The total failure of markets to produce the best outcome long term is apparent when you look at phenomena such as climate change. It's not just coincidental that many libertarians reject the facts of climate change because it is the most obvious case where their theories fail completely. And instead of accepting that their theories are incomplete or trying to improve them they just ignore or reject the evidence that any reasonable person should accept.

In the past, Act (the party which Hide was leader of) actually rejected climate change and it seemed that it was only through persuasion of its coalition partner (itself a conservative party but one which at least accepted the facts of this issue) that it changed this view. Except I doubt whether it really did because it seemed that it just stopped talking abut the subject instead of actively trying to fix it.

So in a simple system which doesn't require planning too far ahead and doesn't need to account for non-monetary costs such as environmental and social damage, neo-liberal free market libertarianism is fine. But that simple system doesn't exist in the real world. In the end reality has this annoying habit of catching up with ideologues and showing that their theories aren't quite as great as they thought they were.

Until recently we have been able to ignore the long term effects of our current oil-based economy. Global warming wasn't as well understood in the past and oil was still plentiful and easy to extract. Now we see that it was all an illusion because that unthinking greed and short term thinking has now lead to a situation where the real price of that economy (which was there all along but ignored by the Market) has become apparent.

And that's just the environmental cost. Another effect which is becoming increasingly obvious is the social damage of neo-liberalism. The gross unfairness of a tiny fraction of people owning most of the wealth is leading to a lot of social unrest, most obviously seen in the Occupy Movement protests. That is just the beginning of the war though and it will become a lot worse unless our political and economic system is changed significantly.

But people like Hide still ignore the signs. They want to hang on to their pretty little theory despite the facts, just like the steady state proponents wanted to last century. Politics and economics aren't as good at self-correction as science is unfortunately so it will be far too late before the last of the deniers realise their position in untenable. Until then we will just let the Market blindly lead us along the path to disaster!


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